If you’re a business owner or entrepreneur, understanding Hong Kong’s “60-day rule” is crucial. Not only can it help your business lower costs, but your employees will thank you too. It’s one of those rare, delightful parts of the tax code that rewards you for careful planning.
I’ll show you how it works and how you can take advantage of it.
What is the 60-Day Rule?
Put simply, the 60-day rule says that if you, or your employees, spend no more than 60 days in Hong Kong during a given tax year, you won’t owe salaries tax on the income earned during those days. The idea behind this exemption is to encourage international business and short-term visits without burdening businesses (or their employees) with complicated and costly tax filings.
How Does the 60-Day Rule Work?
If your employees are physically present in Hong Kong for 60 days or less in a tax year (April 1 to March 31 in Hong Kong), their earnings from services performed in Hong Kong aren’t taxed.
Hong Kong counts even partial days as full days, so stepping foot into Hong Kong at 11:59 PM counts as one day.
Examples:
- 💁♂️ Exempt: Someone visits Hong Kong four times, each visit lasting 12 days (48 days total).
- 🙅♂️ Not Exempt: Someone arrives intending to stay 50 days but unexpectedly stays 61 days. All 61 days become taxable. There is no prorated exclusion beyond the threshold.
Who Benefits from This Rule?
- Business Travelers: Executives attending short-term meetings or negotiations.
- Consultants and Freelancers: Independent contractors visiting clients for brief assignments.
- Short-Term Expat Workers: Employees temporarily seconded to Hong Kong for short projects.
Who Doesn’t Qualify for the 60-Day Rule?
It’s equally important to know who can’t take advantage of this rule:
- Long-term Residents: If you’ve relocated or moved your base permanently to Hong Kong, even a short presence in the initial year won’t count as a “visit.”
- Directors and Office Holders: Income from directorships or other official positions doesn’t qualify—it’s taxable regardless of duration.
- Government Employees: Employees of the Hong Kong government or public entities are excluded from this exemption.
- Crew Members: Aircraft and ship crew have separate, specific rules that differ from the standard 60-day exemption.
Planning Considerations for Businesses
Smart planning helps businesses benefit fully from the 60-day rule:
- Strategic Scheduling: Carefully manage the timing and duration of employee visits, ideally leaving a buffer (aiming for fewer than 55 days) to handle unexpected delays or emergencies.
- Documentation: Maintain thorough records, including travel logs, boarding passes, and employment contracts detailing service periods in Hong Kong.
- Monitoring Systems: Implement internal tracking systems or software to accurately monitor cumulative days employees spend in Hong Kong.
- Tax Treaty Awareness: If your employees come from countries with double taxation agreements with Hong Kong, these treaties might offer different or additional exemptions. Understanding applicable treaties can help you further optimize your tax situation.
- Clear Communication: Ensure employees clearly understand limits and expectations.
- Tax Filing Precautions: If there’s any chance an employee will exceed 60 days, employers often file an IR56E (notification of commencement) and IR56B forms to remain compliant and avoid penalties.
Common Mistakes and How to Avoid Them
- Ignoring Partial Days: Even brief stays count as a full day.
- Misclassifying Income: Director fees and official roles are always taxable.
- Lax Monitoring: One extra day can erase all benefits—keep close track of days.
Relax—Hong Kong’s 60-Day Rule Isn’t Going Anywhere
There have been no recent changes to the 60-day threshold in the Inland Revenue Ordinance – it remains the same as in past decades. The rule’s strict cut-off has been consistently upheld by the authorities and the courts. For instance, a 2019 Board of Review decision reaffirmed that the 60-day exemption is statutory with no discretion, meaning IRD cannot waive the limit even in hard cases.
Ready to save on taxes?
Taxes can get complicated fast, but with careful planning and a basic understanding of Hong Kong’s 60-day rule, you can keep your business costs down. For personalized advice and expert guidance, get in touch with Monx, your trusted Hong Kong accounting and tax firm. Taxes may never be enjoyable, but saving money definitely is.
